Transfer value of pension

xylophone

I have, but it doesn't tell you how to calculate the transfer value of the deferred benefits. Just the formula for deferred benefits.

From link above:

"If you change jobs and move out of higher education you automatically cease to be a member of USS and can’t continue to pay into the scheme. You have various choices as to what to do next.

If you have 2 or more years' (calendar length) membership in USS we work out your accumulated pension benefit using the following formula:

Pension = 1/80th x pensionable service x pensionable salary at leaving

Tax Free Cash = 3 x pension (as calculated above)



Here’s an example based on a member with 7 years and 113 days’ membership in the scheme and a pensionable salary of £40,500 on leaving:

Pension = 1/80th x (7y + (113d/365)) x £40,500.00 = £3,700 per annum

Tax-free cash = 3 x £3,700 = £11,100

In USS these benefits are known as ‘deferred benefits’ and the value of these benefits increases over time by the increase in line with official pensions. However, for service built up after 30 September 2011 USS matches official pension increases up to 5% a year and then 50% of any increase to official pensions in excess of 5% a year with a limit of 10% in any one year. So if official pensions increased by 15% the USS increase would be 10% in that year.

To work out the current value of your deferred pension please use the Deferred pension increase modeller"

lovsn

jem16 wrote: »

It doesn't stay frozen like that. Your USS pension will become a deferred pension - ie the pension will be calculated now and then increase each year in line with inflation. It is also a guaranteed pension with no risk to you, whereas any money purchase scheme such as a stakeholder is subject to investment risk.

It's such a high risk transaction that an IFA will always be required to sign off a transfer of a defined benefit scheme to a defined contribution scheme.

Sure, I get that the final salary scheme is linked to inflation, and is also guaranteed.

I guess the way I'm thinking is that this transfer value is £x.

I know that the value of the USS pension, g(x), is better than the private section pension f(x).

But, if I add another, say 20 years to the private sector pension, is f(x+20) bigger than g(x) + f(20)?

lovsn

xylophone wrote: »

To work out the current value of your deferred pension please use the Deferred pension increase modeller"

I tried that, but the "current" value is different to the "transfer" value

xylophone

http://www.uss.co.uk/SchemeGuide/FinalSalaryBenefitssection/leavingthescheme/transferout/Pages/default.aspx
"he transfer payment is worked out by converting the value of your USS pension rights (including any service purchased under the Added Years AVC scheme) to a current cash equivalent using age and longevity related factors.

The calculation also takes into account fluctuations in the stock market but includes no allowance for the value of discretionary benefits. Any AVCs you have paid into the money purchase AVC fund would also be transferred at their value at the time of transfer.

Please look at your choices under the ‘Rejoining USS’ paragraph below before deciding to transfer your deferred benefits out of USS.

Full details are in the USS booklet Leaving the scheme.

How do I request a transfer value?

If you are considering a transfer value to another scheme it is usually easier to ask that scheme to contact USS for the transfer value quotation-they will usually ask you to sign a form so they have your authority to act on your behalf. You can of course request a transfer value quotation by writing to USS."

Back to post 2..... This thread reminds me of "There's a hole in my bucket....":D

jem16

lovsn wrote: »

Sure, I get that the final salary scheme is linked to inflation, and is also guaranteed.

I guess the way I'm thinking is that this transfer value is £x.

I know that the value of the USS pension, g(x), is better than the private section pension f(x).

But, if I add another, say 20 years to the private sector pension, is f(x+20) bigger than g(x) + f(20)?

2 years in the USS scheme finishing on £25k would see a pension of £625pa and a lump sum of £1875.

Taking 3%pa growth in 20 years that pension would be worth £1129pa and increased lump sum. To get that with the same level of benefits ( ie spouse pension and index-linked) you would need a pension pot of approximately £37,633.

So the question you need to ask yourself is, could the transfer value (which you need to ask for) be guaranteed to grow from whatever to at least that amount? It would need a transfer value of around £20k making 3%pa for 20 years.

Then you need to consider the lump sum.

I'd be very surprised if your transfer value was anywhere near £20k never mind what you would need to include the lump sum.

You will also need to factor in the cost of an IFA.